World News – AU – APRA gives Westpac a kick on the back

Westpac itself revealed the depth of the regulator’s frustration with a risk management turnaround that just isn’t coming quickly enough.

If there’s one good thing to get out of Westpac’s violations of supervisory standards, it is for the bank to recognize the loophole it is in when it comes to managing risk.

Peter King is very busy rebuilding Westpac’s risk culture. David Rowe

The Australian regulator said Tuesday it would take action against Westpac over errors the bank made in handling some financing and credit products in calculating their liquidity coverage ratio and stable net funding ratio.

In a statement that can only be described as mild, APRA explained how the violations “reveal weaknesses in risk management and supervision, in the framework for risk control and in the risk culture” and “now require extensive reviews by independent third parties from Westpac compliance with the liquidity reporting obligations of APRA « as restructuring of the » control framework for liquidity risk management « .

It’s serious stuff, no doubt – prudential rules should be absolutely sacrosanct. But for those outside of banking, it was all very technical.

In a review of the governance of Westpac, which was initiated in December 2019, shortly after the news of the AUSTRAC scandal, which would soon destroy the jobs of then CEO Brian Hartzer and Dr. Chairman Lindsay Maxsted.

Rather, as Westpac admitted in Tuesday’s announcement, APRA stated that the bank « has an immature and reactive risk culture, unclear responsibilities, capacity constraints and inadequate oversight ». .

More worryingly, Westpac has attempted to address these issues, but so far these efforts have « not shown the expected improvements in these programs, » according to APRA.

As a result, Westpac will now be forced to enter into enforceable commitments with APRA in connection with its risk management efforts. Westpac also said that APRA requires « more security » for delivery of its fixes.

The regulator’s frustration was revealed by Peter King, Westpac CEO. He said the bank knew it « had to work faster to fix our shortcomings ». .

But if Westpac clearly sees this as a real missile, it is strange that APRA struggled to get that message across.

This is not about technical violations of liquidity standards, which, according to APRA, were quickly remedied and do not affect Westpac’s liquidity position. This is about the culture, systems, and processes that enabled these errors to occur.

Investors fear that the bank does not appear to be making great strides in determining its risk management.

As the bank pointed out in its market announcement, many of the issues that APRA identified were issues that Westpac itself found in its report on culture, governance and accountability. The second version of this was released in July, but the original review, carried out as part of the Hayne Royal Commission, is from July 2019.

Westpac clearly had a mountain of problems to deal with during this period – the AUSTRAC scandal, the appointment of a new CEO and Chairman, a number of management changes and of course COVID-19 pressure on the bank both in general (as Westpac joined the banking sector’s indulgence campaign) as well as specific (including difficulties with offshore mortgage processing). )

However, the management of financial and non-financial risk has been the central theme of the royal commission. It is worrying that Westpac did not respond quickly enough to resolve its issues and that the fixes it made were not effective enough.

The frustrated kick-up on the back that APRA delivered on Tuesday – or that Westpac self-administered – is a reminder that the bank remains a turnaround. And King still has a lot to do.

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Westpac, Australian regulator, finance, liquidity coverage, market liquidity